Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies
By Charles G. Koch
(Crown Business, 288 pages, $28)
Charles Koch’s new book, Good Profit, is written for two different kinds of readers. The first is the entrepreneur who wants to build up a firm, as Koch did in spectacular fashion. So much so that an investment of $1,000 in the company back in 1960 would be worth $5 million today (if dividends had been reinvested in the firm). I’m not that kind of reader, alas. I’m the second kind, who wants to know how a company that foreswears crony capitalism can thrive, as Koch Industries did.
Koch doesn’t lobby the government to support its products, as crony companies such as Solyndra did. Doing so creates what Koch calls “bad profit,” profit that doesn’t really serve customers and that imposes a cost on the taxpayers who are asked to support a losing venture. Solyndra became the poster child for Obama’s “green energy” program, the conceit that a community organizer with an ego as big as the Ritz could identify profitable opportunities that business firms had passed up. The firm produced solar panels which they sold below cost, thanks to a half-billion dollar loan guarantee from the feds. It was like the old joke about the fellow in the needle trade who sold his suits below cost. “How can we run a business that way?” asked his son. “Easy,” said the father. “We make it up in volume.” For Solyndra, making it up in volume meant sticking the taxpayer with the bill. As Larry Summers famously observed, “Government is a lousy venture capitalist.”
What’s interesting about Charles Koch’s story is that he didn’t begin as a flint-eyed Randist, concerned only with his selfish desires. Just the opposite. His mentor was Adam Smith, not the Adam Smith of The Wealth of Nations but the younger Smith who wrote The Theory of Moral Sentiments, and who said that “to feel much for others, and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.”
What the young Koch sought to understand was how to promote societal well-being. And what he learned was that socialist methods weren’t the answer. Instead, he found better teachers in thinkers such as Friedrich Hayek and Tom Sowell. The ultimate goal wasn’t to produce the biggest, wealthiest Koch Industries, but to discover the well-springs of a happy society. Koch pursued socialist ends through capitalist means.
What this meant was a system of government and of laws that permits people to flourish—a system that clearly defines and protects property rights, that enforces bargains, and that allows people to speak freely. Not surprisingly, this has put him at odds with the progressive Left, from Obama on down to the meanest little guttersnipe on Salon, Kos, or Media Matters. In particular, it’s been Koch’s efforts to spread his message about how governments can promote human flourishing that have enraged the Left, with its programs for campaign finance “reform.” What reforming our politics means, for that lot, is removing the taint of conservative ideas in politics, in a country in which every other institution—the media, the universities, public schools—tilts Left. Scratch a liberal, get a fascist. And if the Supreme Court defends First Amendment rights of free speech, why the solution is to change the Court’s make-up, as Hillary Clinton promises to do. After all, with her it’s personal. The Citizens United case was all about Hillary: The Movie.
It would take a Harvard B-School prof to do justice to Koch’s lessons about how to run a business. As I said, that’s not me. And one of the lessons from the book I take to heart is Adam Smith’s comparative advantage: no point trying to duplicate what someone else can do better. But I can enjoy a personal story about someone climbing the ladder, and that’s what Part One of the book is about. It’s a candid story about the young Charles Koch who had to learn the lessons of success on his own, because he wasn’t good at taking lessons from others. With humility, dedication, hard work, and a sense of humor, however, he was able to succeed wonderfully. It’s a sunny story about business success, in a country full of similar entrepreneurs but with a literature that preaches about the hollowness of the American dream. We’ve had countless novels and plays about how wealth is built on crime, about the evils of capitalism, from people like F. Scott Fitzgerald and Arthur Miller, people who had not the faintest idea about success in business or in life. How refreshing it is to get the real story!